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The quirky little start-up that once printed money by mailing you DVDs is hell-bent on morphing into the HBO—and the network, and the any-show, any-time streaming service—of tomorrow. Can Netflix and its pathologically modest founder, Reed Hastings, pull it off? Who knows? But it's going to be fun to watch, starting this month with David Fincher's $100 million House of Cards. The only guaranteed winner in the bloody battle for the on-demand future? You. On your couch

In the beginning, there was the tube. The cathode-ray tube, that is, and "The Tube," that squat shiny box that ate up half the living room and all of your family’s attention. Then came cable, and videocassettes, HBO, DVDs, and the Sony PlayStation and TiVo, satellite and Blu-ray, and the ninety-six-inch flat-screen and a slew of awkward little bos with those mysterious colored lights, all of which changed the way we entertain ourselves. But most important, there came the Internet and Steve Jobs and Jeff Bezos and Reed Hastings, who blew up all the old paradigms about who, what, when, where, why, and even how we watch, busting the chains that bind us to our cable bos, to the never-ending scroll of 739 channels, to our prime-time prison.

Hastings, the CEO of Netflix, has a name for this prison and what it does to the people trapped inside it: managed dissatisfaction. "The traditional entertainment ecosystem is built on it, and it’s a totally artificial concept," says Hastings. "The point of managed dissatisfaction is waiting. You’re supposed to wait for your show that comes on Wednesday at 8 p.m., wait for the new season, see all the ads everywhere for the new season, talk to your friends at the office about how excited you are." If it’s a movie, he adds, you wait till the night it opens, you wait for the pay-channel window, you wait for it to come to cable. Waiting means pent-up demand, millions of people watching the same thing at the same time, preferably at night, when they’re pliant with exhaustion and ready to believe they need the stuff being hawked in all those commercials. Waiting, Hastings says, is dead.

Arrested Development is back!

Hastings is a rangy, goateed 52-year-old with a master’s in computer science from Stanford who left the Marine Corps officers’ training program to teach in the Peace Corps in Swaziland. It’s a mild California morning in November, and he’s sitting at a weathered teak table outside the modest house he shares with his wife and two teenage kids in hippie-inflected Santa Cruz, thirty minutes from Netflix headquarters in upscale Los Gatos. Barely 1,800 square feet and furnished with puffy couches and few personal touches beyond some family pictures on the mantel and four sleeping dogs his wife rescued from the shelter, it looks like the sort of pad a newly hired midlevel software ecutive might rent while he was looking for something to buy. Hastings’s only domestic indulgence is a $5,000 handmade Italian espresso machine—"the closest I’m going to get to a Bentley," he jokes—in the cozy Sub-Zero-less kitchen.

But just because Hastings doesn’t care about boats and cars doesn’t mean he isn’t relentlessly ambitious. After all, the guy is betting everything on a breathtakingly expensive plan to transform his once humble DVD-by-mail company into a worldwide on-demand behemoth and a major force in original programming, a supercharged HBO. Within the next decade, probably the next five years, he figures, ours will be a seamless, multidevice on-demand world, a place where services like Netflix will be so fat with content that the idea of paying a $150 monthly cable bill for a bundle of unwatchable crap will seem as quaint as gathering around the Sony Trinitron with Ma and Pa on Tuesday at 8 p.m. for All in the Family.

Is It Time to Cut the Cable Cord?(click to enlarge) On February 1, all of Hollywood will be watching the debut of House of Cards, David Fincher’s drama starring Kevin Spacey, for which Netflix outmaneuvered HBO. (Fincher, the director of Fight Club and The Social Network, has never before done television; Hastings gave him $100 million and let him make two thirteen-episode seasons.) Subscribers will be able to stream the entire first season of the pitch-black Beltway thriller—imagine the anti–West Wing—in a single sitting. Within months of that debut, two other series, Orange Is the New Black (by Weeds creator Jenji Kohan, from a memoir about a Smith girl in a women’s prison) and Hemlock Grove, an adaptation of the supernaturally tinged novel, will also stream exclusively on Netflix. And in the spring, Netflix will debut the long-awaited season four of Arrested Development, the beloved series that Fox canceled seven years ago. (Also on the tarmac: Derek, Ricky Gervais’s much maligned show about a dim-witted eccentric who works in a nursing home, and season two of Lilyhammer, Netflix’s first attempt at an original series, which debuted last February and stars Steven Van Zandt as a mobster taking shelter in a small Norwegian town.)

Netflix’s first original series, Lilyhammer.

The strategy may gut some media conglomerates along the way and could prove too costly for even a cash-rich company like Netflix to sustain, but one thing is certain: It will make a lot of viewers—bingeing on brand-new shows made by the hottest writers, directors, and producers—deliriously happy. "This is the direction that storytelling is evolving, where you’re going to have the most interesting story lines, the most interesting characters," says Spacey, who is also an ecutive producer of House of Cards. "What a company like Netflix is doing is the ultimate expression of individual control, proof of what people’s attention span really is."

The heady rhetoric, of course, masks a few nagging questions: Once waiting is history, will "quality" television still pack the same cultural punch? Would Tony Soprano be Tony Soprano if we had been able to gorge on his life in a single weekend? How important are episode recaps and live-tweeting and the shared experience of everyone watching together?

"in a creative business like this, you have to take risks, and sometimes you’re wrong," Hastings says. "You have to move on. I work a lot on that."

Hastings will graciously debate the merits of consuming entertainment the old-fashioned way, but you get the idea that he’s just humoring you. He is convinced that once we give up the artificiality of managed dissatisfaction, we will never miss it. He held this truth to be self-evident fifteen years ago, even as he and Netflix co-founder Marc Randolph (who left in 2002) were experimenting with the best way to mail DVDs. Hastings was keeping an eye on streaming video in its infancy, and he knew then that streaming was going to kill his own DVD business and, ultimately, broadcast and cable if they stuck to their guns. He knew that people were going to want to watch what they wanted, when they wanted it, and that no amount of network or studio hand-wringing would prop up the wall. Back then, before he decided to invest in original programming, he figured that the best way to keep customers was to personalize the experience using algorithms that churned their viewing histories. In the DVD era, this meant a tepid list of "You Might Like" next to your queue; now it involves a bespoke Netflix interface, an illustrated version of your entertainment psyche in all its vainglory: Black-and-White Thrillers, Action Movies with Martial Arts, Documentaries about Pot.

"Back when we were just mailing DVDs, we were thinking, Can we be ready for the transformation to streaming?" he says, balancing on his saucer an egg he’s just plucked from the coop in his backyard, where five chickens peck around with a couple of Nigerian dwarf goats. "Can we know our subscribers well enough to show them what they want?"

By plenty of measures, he’s half-scaled the mountain. Netflix now has about 30 million streaming subscribers worldwide, more than 25 million in the United States, in addition to about 8 million people—admittedly dwindling daily—who still pay to get DVDs in the mail. At $7.99 a month, that’s about $3.6 billion a year rolling in. Nearly a third of all U.S. Internet streaming traffic in the evening comes through Netflix. (YouTube accounts for 13 percent, Facebook less than 2 percent.) And Netflix is in the midst of an international expansion covering fifty countries, including Scandinavia and the U.K., where in thirteen months it has gained more than half as many subscribers as LoveFilm, its long-established Amazon–owned rival.

"Fincher is very interested in exploring just how deep the dark well goes, and so am I," Spacey says of House of Cards.

That’s all the more remarkable when you consider that it’s been little more than a year since Hastings made the near-fatal mistake that still haunts him—announcing in rapid succession a major price increase and the news that Netflix would split off its DVD business into a separate company called Qwikster. He thought he was just formalizing a shift that had already happened for his customers, but he badly underestimated their emotional tie to the little red envelope. He quickly retreated, posting a mea culpa video that wound up as fodder for an SNL parody that got cut from the show but went viral online. ("Qwikster is split into three new websites: Qwikster, Kwickster, and Qwickster.") Though he killed Qwikster before it even launched, about 800,000 Netflix subscribers canceled in just a few months, sending the stock from an admittedly inflated $300 a share to $77. (At press time, it was trading at about $95.) Comparisons to the New Coke fiasco abounded.

But it wasn’t just bad messaging that ended the honeymoon between Netflix and Wall Street. No, for all his vision and adaptability, Hastings is currently in the vice grip of so many competitive forces that it’s a marvel he can maintain his Zen calm. Giants from Amazon to Apple TV to Hulu are throwing money at their own streaming services, driving the cost of licensing exclusive content into the ozone. Amazon and iTunes charge per episode or movie, which means they’re able to stream newer stuff. (Subscribers to Amazon’s $79-a-year Prime shipping service get free access to a growing selection of content.) Meanwhile, Netflix hasn’t been able to add subscribers at the swift pace it promised shareholders lately, a trend that could make it much harder to establish the "virtuous cycle" it’s chasing—that is, subscription fees enabling Netflix to acquire content that in turn attracts new subscribers, which will pay for more content. Profit margins, which are nearly 50 percent on the declining DVD side of the business, are only about 17 percent on the streaming side of the ledger. Smelling blood in the water, Carl Icahn, the notoriously intrusive takeover shark, snatched up 10 percent of Netflix’s stock in October, probably hoping to force a sale to a deep-pocketed giant like Google or Facebook.

"I really don’t see how they can stay afloat alone," says a top TV ecutive (and yes, one of Hastings’s key competitors), adding that the kind of high-quality original television Netflix plans to make is "an incredibly expensive game to be in."

From the creator of Weeds, a ladies-in-prison show.

Like any CEO of a publicly owned company, Hastings doesn’t rule out a sale someday. Just not today. Or tomorrow. And not on Icahn’s timetable or at $95 a share. He believes that investing deeply in original content and driving deals like the one he made with Disney in December (exclusive streaming of all Disney films during the premium-cable window starting in 2016) will enable Netflix to grow to 90 million subscribers in the United States alone. That would be a hell of a trick, considering that at the moment there are only about 81 million homes with broadband. But he seems certain that Netflix will survive in entertainment’s New Order, along with ESPN and HBO once those mighty brands figure out a graceful way to transition to stand-alone streaming. Those other guys? All those marginal channels that depend on being packaged in a basic-cable bundle, not to mention the cable companies themselves? He’s not so sure.

"What if you could radically alter the way stories get told?" asks Ted Sarandos. "What if the way people wanted to consume content actually changed what you could make?" Rhetorical questions, perhaps, but the kind of things Netflix’s chief content officer, its point man in Hollywood, likes to ponder when he has a down moment.

Which is hardly ever. These days, he is the man everyone wants to take a meeting with. People love you when you’re handing out the cash, and Sarandos, who looks the part with pressed jeans and a crisp white shirt but has one of the weirdest résumés in town (graduate of an Arizona community college, worked his way up in the DVD business from video-store clerk, landed at Netflix in 2000 to run distribution), has $6 billion to dole out over the next three years. Most of that is for licensing content from networks, cable companies, and movie studios, but about $300 million is for original programming. "There’s not a lot of really great, deep, serialized television," he says, "and we can see from the data that that’s what people want."

He hopes to make at least five new shows a year, he says, leaning back on a sofa in his Beverly Hills office in an anonymous-looking suite. His dream project: a Netflix series created by Warren Beatty. "He’s great in long form," Sarandos says. "His only problems have been when he’s constrained." Sarandos is also warming up Jodie Foster, who directed an episode of Orange Is the New Black. "The goal," he says, "is to become HBO faster than HBO can become us." His seductive pitch to today’s new breed of TV auteurs: a huge audience, real money, no meddlesome ecutives ("I’m not going to give David Fincher notes"), no pilots (television’s great sucking hole of money and hope), and a full-season commitment.

"The idea that they wouldn’t just pull the plug midway was totally thrilling," says Kohan, who spent years in the network trenches before making Weeds for Showtime. To her, "It’s similar to a pay-cable model but even more liberating. This is the future."

Sarandos is hoping his big tent will attract creators who want to explore the boundaries of storytelling. Binge viewing obviates the need for recaps and other clunky narrative devices. He isn’t even wed to uniform episode lengths. What’s so magical about twenty-two minutes or even a hour? "I really think we have the chance to radically change the depth of character connectivity," he says. "I mean, a meaningful shift. It’s going to further blur the line between television and movies."

Hastings is staying at the Parker Meridien, a sleek midtown-Manhattan hotel, but he shuns the power-breakfast spot in the lobby, which is studded with young media types from nearby News Corp. and Time Warner in their slim-cut suits. Instead, in a gray button-down and pair of brown khakis, he sips a coffee at the local Pain Quotidien. He’s in town for a board meeting of the charter-school network into which he pours millions. Education reform is where he concentrates his philanthropic efforts—he even served on the California State Board of Education when Arnold Schwarzenegger was governor. He could probably dominate the board of his alma mater, Bowdoin, the small liberal-arts college in Maine, probably have a building named after him by now, but that just seems, well, pointless. He’d rather disrupt a large system bound by archaic traditions and shoddy technology. Or rather, a second one.

"You have to focus on one thing where you’re clear on what kind of impact you want to have," he says. "Otherwise you never get anything done."

Back in his hotel room, he’s assembling the material for a December retreat in the Arizona desert with his top lieutenants. Amid strategy sessions on topics like the new "meta-filters," the Kayak-like websites that could erode Netflix loyalty by letting consumers compare which services have the shows they want at the best prices, there will be Hobbes on nature, Jefferson on government, Yeats on the good life. And there’s sure to be something in the program about resilience; Hastings still wrestles with guilt over mistakes he’s made, especially the Qwikster debacle. "You have to learn not to self-flagellate endlessly, to forgive yourself, but it’s hard. In a creative business like this, you have to take risks, and sometimes you’re wrong. You have to move on. I work a lot on that."

These days Netflix is legendary in Silicon Valley for its so-called Culture Deck, the company’s constitution. Nearly 3 million people have viewed it—it’s accessible on the Internet—and it’s a brilliant recruiting tool. Sheryl Sandberg, COO of Facebook, where Hastings holds a board seat, says it’s the reason Facebook’s directors pursued him. "It may well be the most important document ever to come out of the Valley," she says.

The highlights: no limit on vacation days at Netflix, ditto for sick days. No one tells you when to come and go or clocks you when you do. Doing B-level work despite A-level effort will get you a severance package. (Annual attrition is a chilling 20 percent.) A-level work with minimal effort? More money and responsibility. Hastings tells me he has no idea how much vacation his people take on average, and he insists he doesn’t care. Sure, there are times when people stay late, and there’s plenty of e-mailing from home, but a typical day ends at six. (Hastings has no office on the company’s five-building campus; he just floats around with his iPhone, checking in on people, pulling someone into a vacant conference room for a face-to-face.) "You don’t have to give up your life to do your job incredibly well," he says.

Which isn’t to say that Netflix is a laid-back place to work. Every employee, and most of all Hastings, is obsessively conscious of the mortal challenges the company faces—but that doesn’t stop him from sometimes making light of them. In late 2010, after Time Warner CEO Jeff Bewkes publicly dismissed Netflix as no more of a threat than the Albanian army, Hastings had Albanian army berets made for senior staff.

Will Arnett, who reprised his role as Gob Bluth for the new season of Arrested Development, gazes out from the curtained-off VIP area as the soldiers of the Netflix army stream into the back lot of Fox Studios in Century City. Nearly 1,000 strong, with geek flags flying, they wear plaid short-sleeve shirts over surf tees and tiny backpacks bulging with devices and chargers. They gawk at the taco truck parked under the giant mural of Tom Ewell fondling Marilyn in The Seven Year Itch, scoop chocolate-covered bananas from the portable freezer, queue up at the open bar, and gleefully scamper to the top of the Bluth "stair car," iconic to Arrested Development groupies, for a photo op.

Not the usual wrap party, that’s for sure, with grips and gaffers downing beers before their long rides home to Cerritos. Arnett still can’t quite believe that the series has been resurrected, or that Hastings has flown in the company’s entire staff—a huge percentage of whom embody the show’s core fan base—from Silicon Valley to celebrate.

"These are our people," Arnett says, before slipping behind the curtain with co-stars Portia de Rossi, Michael Cera, and David Cross. It’s hard to tell if that’s pride in his voice or horror.

Hastings ambles onto the lot with the crowd, nary an assistant—he doesn’t have one—to clear his path. They say you can tell a lot about a company by how the troops act when the boss is around at a "casual" event—the desperate tactics to score one-on-one suck-up time, the pathetic way they work to catch his eye. But when a bed-headed programmer in a Banana Splits tee accidentally jostles Hastings, the guy barely glances up from his iPad to say "Oops—sorry, man," before moving on.

Without stopping for a drink, Hastings beelines for Peter Levinsohn, Fox’s head of digital distribution. The production arm of Fox financed the original Arrested Development, which ran on the network but died of weak ratings despite its cult status. This time, Levinsohn made the deal with Netflix to produce another season for the site to stream.

"Peter’s been a really great partner," says Hastings, flashing a gentle smile.

This is where Levinsohn is supposed to chime in with: "And Netflix has been a great partner, too! Isn’t it wonderful that fans will be able to see another season of this wonderful show?"

But Levinsohn misses his cue. "Well, overall it’s been a good relationship." Hastings stiffens for a beat, then summons back the happy face. He spends a lot of time these days trying not to scare the cable companies and the networks so badly that they’ll gang up on him, downplaying the idea that Netflix could eventually supplant outlets like Fox and NBC. But his happy face isn’t working its magic right now. "I’d be lying if I said I wouldn’t prefer if it were more, um, network-centric," says Levinsohn. "Do you know what I mean?"

Hastings chuckles unconvincingly. Of course he knows. He knows that not even a guy like Levinsohn, who’s gamely experimenting with the industry’s new reality, can deny that he’d much prefer a prime-time slot on a major network. They both know it’s only a matter of time, and not much of it, before companies like Netflix and its phalanx of young and restless programmers and subscribers throw Hollywood off schedule permanently.

"Isn’t this great?" Hastings says, gently guiding Levinsohn past a replica red carpet where giddy engineers pose in front of a wall plastered with the Netflix logo. Instantly their photos are projected on a huge screen above the crowd.